Dave, your theory proves too much. Every taxable transaction (almost, with rare exceptions like Roth IRA conversions) involve the transfer of assets. The question is whether or not they should be taxable.

The underlying theory of gift and estate taxation is that it is a tax in lieu of income taxation (which expressly exempts donative transfers from tax). The main argument for having a separate gift and estate taxation regime, instead of fully integrating it with the income tax is ease of tax administration. For example, allowing a gift and estate tax deduction to tax exempt entities is consistent with this view, as is the unlimited marital deduction which is consistent with the income tax rule that transfers between spouses do not trigger income taxation.

Keep in mind that the decedent doesn't really pay estate taxes. They are really paid by heirs, who are in a position that differs very little from lottery winners, whom we do tax under the income tax. Why should a child who works in a family business and earned an income from doing so be taxed more heavily than a child who receives a gift of family business assets?